g economy at this time, but with them being too low, it causes a capital inflow to the country, in turn making the currencys value depreciate as more of it is supplied and demanded. The trend in 1997 and 1998 indicates that the interest rates are starting to climb again with hopes to regain the original strength the dollar. Other FactorsBesides these basic economic indicators two other main factors influenced the depreciation of the Canadian dollar. The first of these resting in the hands of the Federal governments action, or as some would put it, lack of action. The Prime Minister and finance minister did nothing in terms of trying to stop this devaluation of the dollar. In fact, they encouraged it. Their thinking was that a weakening dollar would reduce the labor costs of many companies, therefore increasing the amount production and increasing margins. The opposite occurred. With the lower value of the dollar, companies were less motivated to innovate and reduce costs because they were so sheltered by the strong foreign competition. The weaker dollar also raises the price of machinery and equipment, which of it, 60% is imported. With these factors comes a decrease in competition with the foreign firms and overall decrease in the health of the country. Jeff Rubin, an economist at CIBC World Markets agrees that this depreciation in the currency has also had a huge erosion in competitiveness. Mr. Rubin also agrees that the lack of action taken by the government has hurt competitiveness. the protective aspect of the a weak dollar is to blame for the plunge in competitiveness and that the currencys devaluation was engineered by the Bank (of Canada). Yet another source has the same opinion, The dollars decline was intensified by the Bank of Canadas benign neglect through early August (1998) and the apparent indifference expressed by the government. Some would also argue that tied along with this deterioration in co...
